Paying It Back

DO YOU WANT TO GO TO COLLEGE OR BUY A CAR SOMEDAY?

You can reach your long-term goals by borrowing money and paying it back later.

You may have borrowed money from a friend for an after-school snack or from your parents to see a baseball game, but in the future you might need to borrow more than a few bucks. The cost of going to college or buying a car is usually more than you have saved in your bank account. Luckily, investing in your future or purchasing an expensive item is still possible with a loan. When you borrow money from a bank, it’s not free money — you have to pay it back, plus interest. This means you have to pay back all the money you borrowed plus extra for the service.

Watch this video to learn how interest works when you borrow money.

It’s payback time

Everyone borrows money at one time or another in life. If you make a plan to pay the owed money back on time and stay within your budget, your debt won’t be out of control.

Have you watched car commercials where they’re talking about car financing deals? In a few years, you might be driving. You may not be able to buy a car today, but for this exercise, let’s look at how a car loan works. A typical length of a car loan is five years at about a 4% interest rate. If you are under 18 and want to take out a car loan, you will need your parent or guardian to be a cosigner.

Car loan

Total amount borrowed

$5,000

Interest rate

4%

Length of loan

60 months

Monthly payment

$92

Total cost of loan plus interest

$5,524.96

What does that look like in real life? Use the calculator below to find out.

What might you need to borrow money for in your future?

A Car

A House

College

A Business

Did you know?

If you pay back your loans late, you will pay more in interest and late fees than if you payed them back on time.

WHY CREDIT MATTERS

Take control of your credit score by managing your debt.

The amount of debt you’re in may impact how easily you can qualify for future loans after you turn 18. There is a written record, or credit history, that tracks how you’ve repaid previous loans, any outstanding debt and other financial history. Your credit history determines your credit score, which helps lenders decide the credit risk associated with loaning you money. Credit scores range from 300 to 850. Generally, the lower your credit score, the higher the interest rate you will have to pay on future loans because it’s assumed there’s a higher risk you might not pay it back on time.